and the
Citizens Economic Research Foundation

Tax cuts of the ‘90s

Often we hear how the Legislature "passed 42 tax cuts" during the ‘90s. Many of those tax cuts were adopted in an effort to limit the size of mounting surpluses that, even with the tax cuts, were running a billion dollars a year – during the same period that CLT was trying to get the historic 5% income tax rate finally restored.

Over the years there have been various lists that depend on how "tax cut" is defined to arrive at their totals. Some have even counted the initiative petitions passed – not by the Legislature – but despite the Legislature, by the voters. 

Of course this was before "The Biggest Tax Increase in State History" in 2002, which restored some of the taxes that had been cut – yet still are counted among the list.

We have listed below the various legislative tax cuts since 1990, including those in this 21st century, and have divided them into the personal income tax, the sales tax, business taxes, and "other." At the end we list ballot tax cuts that were enacted by the voters or were passed by legislators only after sufficient signatures were collected for a ballot question, so that legislators could take credit for the inevitable.


1.  Income tax rate cut from 6.25 to 5.95%
As you know, the income tax rate was increased "temporarily" in 1989 from its traditional 5%. That year the rate became 5.75%. Because both Republicans and Democrats were angry with Michael Dukakis – whose administration had hidden the deficits during his presidential campaign – the vote was very close and could not have passed unless legislators could say it was "temporary." And sure enough it was, because the next year they hiked the rate again, this time to 6.25%. But this time, part of it was actually "sunsetted;" the legislation required that the 6.25% rate drop to 5.95% in 1992.

When that time came, the legislative leadership wanted to keep it at 6.25%, but Governor Weld, who had signed the "No New Taxes" pledge, threatened a veto. That meant a roll call vote to override his veto and keep the 6.25% was required, so the leadership didn’t even try. So the drop to 5.95% happened automatically, but they count it as a tax cut.

2.  "Unearned income" (i.e. savings and investment income) tax cut for senior citizens only
Passed by the Legislature, but it would probably have been found by the courts to be unconstitutional, if an initiative petition hadn’t subsequently given it to everyone.

3.  Cut "earned" and "unearned" income tax rate from 5.95% to 5.75%
Phased in over 3 tax years: 2000 = 5.85%, 2001 = 5.80%, 2002 = 5.75%. This was done to head off our petition drive, but it was made clear that the rate would not drop any further; so we pursued the ballot campaign for the 5% rate.

4.  Long-term capital gains tax rate cut
This was intended to provide incentive for investing long-term by reducing the tax rate each year the investment is held, from 12% to zero after six years. This was later repealed during "The Biggest Tax Increase in State History." The rate now stops at the "earned and unearned income" tax rate."

5.  Allow short- and long-term capital loss offsets against capital gains and interest/dividend income

6.  $250,000/$500,000 capital gains exclusion for sale of principal residence
Updates our Massachusetts tax law to conform to the federal tax code.

7.  Creates a new head of household income tax filing status
Raised personal exemption for single parents from $2,200 to $3,400.

8.  Double personal exemption
73% increase for tax year 1998, 100% increase starting in tax year 1999. This was long overdue; the federal government, as part of the Reagan tax cuts, indexed the personal exemption to inflation but Massachusetts has not. However, even this adjustment was subsequently repealed in 2002 as part of "The Biggest Tax Increase in State History."

9.  Raise no-tax-status threshold for low-income families with children
Married couples with children may earn up to $12,000 plus $1,000 per child tax-free. Heads of households may earn up to $11,000 + $1,000 per child tax-free.

10.  Increase "Under 12" dependent deduction

11.  Increase "Under 12" dependent deduction again, extend it to elderly and disabled dependents

12.  Increase child/dependent Care Expense Deduction

13.  Deduction on student loans
Unfair to students who pay cash for their education. An Education IRA would be better.

14.  Increase Higher Education Student Loan Deduction
Removes some restrictions on loan deductibility which exist in the federal income tax code adopted by Massachusetts as of 1/1/98.

15.  Exempt military retirement pay from income tax

16.  Earned Income Tax Credit
Taxpayers -- many of whom don’t pay state income taxes whatsoever – who claim the federal earned income tax credit can claim a refundable credit on their Massachusetts tax returns equal to 10% of the amount claimed on the federal return.

17.  Increase Earned Income Tax Credit (from 10% to 15% of federal credit claimed)

18.  Title V tax credit provides homeowners a credit for sewer system relief
The least the state can do, after ignoring the harbor pollution problem for decades, the Dukakis administration bungling an opportunity and missing out on the federal matching funds deadline, than charging it all to current homeowners.

19.  Refundable State Tax Credit Against Property Taxes for Seniors ("Circuit Breaker")
Seniors are eligible for a tax credit to the extent that their property taxes or 25% of their rent exceeds 10% of their income. Filer's income must not exceed $40k/$50k/$60k (single/head of household/joint filer), and value of property must not exceed $400,000. Maximum credit is $375 for tax year 2001, $750 for tax year 2002 and thereafter. Starting with tax year 2001, all thresholds and credit amounts are adjusted for inflation over 1999 base.

20.  Eliminate 3% Adjusted Gross Income Floor on Adoption Expense Deduction
Before this change, only adoption expenses in excess of 3% of a filer's adjusted gross income could be taken as a deduction.


21.  Sales tax on services repeal
This also passed in a hurry in 1990 as a tax on legal services, accountants, services for "the rich." When legislators realized it applied to hundreds of services including lawn mowing and snow plowing, they went along with Gov. Weld and repealed it just as it took effect in early 1991.

22.  Repeal of the telecommunications sales tax

23.  Sales Tax Exemption for Trigger Locks and Gun Safes

24.  Exempt Prepress Equipment from Sales Tax

25.  Exempt Aircraft and Parts from Sales Tax

25.  Exempt Aircraft and Parts from Sales Tax

26.  State sales tax holiday on August 14, 2004.


27.  New corporate research tax credit

28.  Increase corporate investment tax credit (ITC) from 1% to 3%
This is regularly extended, though legislators will not vote to make it permanent.

29.  Allow investment tax credit for leased equipment previously excluded from the ITC

30.  Bank tax reform
Reduced rate from 12.54% to 10.5% over 5 years.

31.  Single sales factor apportionment formula
Phased-in over 5 years for manufacturers, effective 1/1/96 for defense contractors. Modified research credit for defense manufacturers. Often referred to as "the Raytheon tax cut."

32.  Harbor maintenance tax credit
Credit against corporate excise for federal harbor maintenance taxes paid by shippers of goods through Massachusetts ports.

33.  Allow income exclusion for contributions to "403b" annuity plans
Pension plans for nonprofit/public school employees.

34.  Exempt earnings and distributions for Roth and Education IRAs
Updates Massachusetts tax laws to conform to federal code on Roth and education IRAs.

35.  Elimination of the net investment income tax on domestic insurance companies
This was done to keep more of them from leaving the state.

36.  Job-training tax credit

37.  Apportionment reform for mutual fund companies
For the purpose of calculating the corporate excise, mutual fund service providers will source sales to the state of their customers effective 1/1/97. Single sales factor apportionment effective 7/1/97. Often called "the Fidelity tax cut." As we understand it, this changed a tax policy that was unfair. And it was clear that this type of business can easily relocate anywhere.

38.  Insurance company tax cuts
Contingent upon $100 million in contributions to each of two newly-created community development funds over a 5 year period.

39.  Repeal of Pay-to-Play
More reform than tax cut, this says taxpayers don’t have to pay an amount in dispute prior to appealing assessments.

40.  Low income housing tax credit
Provides 5-year tax credits to developers who set aside a specified percentage of housing units for low-moderate income renters.

41.  Unemployment tax rate reduction.

It is important to note that most of these tax cuts took place during the period that CLT was advocating for the income tax rollback. Many of the tax cuts were substituted for the permanent, politically hard-to-reverse cut in the personal income tax rate which the legislative leadership did not want. The major business tax cuts were often adopted in fear of businesses taking their jobs elsewhere.


42.  Estate tax reform
From 1993-1996, the Legislature raised the estate tax exemption by $100,000 per year from $200,000 to $600,000 – the same as the federal exemption. Beginning in 1997, only estates with a value of $600,000 or more are required to pay Massachusetts estate taxes, and the amount of state tax is equal to the allowable credit against federal estate taxes ("sponge tax"), resulting in no additional state tax liability above and beyond what would be paid in federal estate taxes. This tax has increased with the federal changes and needs to be revisited.


1.  Increase rental deduction from $2,500 to $3,000
This increase was passed by the Legislature, but the original rental deduction was created as part of Proposition 2˝ in 1980. The Legislature had subsequently put a cap on it, which this legislation raised to reflect rental appreciation.

2.  Rate on "unearned income" – interest and dividend
Phased down so that investment income rate – once 12% – is reduced to whatever the earned income rate is (presently 5.3%). This was adopted in response to an initiative petition on its way to the ballot.

3.  Charitable deduction
This was an initiative petition on its way to the ballot when legislators saw the writing on the wall, enacted it and took credit. Then the Legislature repealed it during the latest fiscal crisis. Another point to make an incumbent debate.

4.  Tax reduction fund
This was created as part of a CLT/Mass. High Tech Council (MHTC) ballot campaign in 1986, and has kicked in or been adjusted in the tax years below. It has been neutralized in the past few years and will be destroyed if the Finneran constitutional amendment for a mandated "rainy day fund" is passed by the voters.

a)  Tax reduction fund, Phase I:  Increased the personal exemptions for tax year 1996 resulting from FY96 budget surplus. $150 million tax revenue reduction occurred in FY97.

b)  Tax reduction fund, Phase II:  Increased the personal income tax exemption for tax year 1997 to expend the remainder of FY96 transfer to Tax Reduction Fund. $92 million tax revenue reduction occurred in FY98.

c)  Tax reduction fund, Phase III:  Transferred $200 million to Tax Reduction Fund and raised tax year 1998 personal exemptions by enough to cut taxes by $200 million + interest and any other balance in the Tax Reduction Fund (approximately $9 million) for a total tax cut of $209 million. Resulted in a tax cut of approximately $57 for single, $115 for joint, and $89 for head of household filers. $209 million tax revenue reduction occurred in FY1999.

5.  Income tax rollback/CLT/MHTC/Cellucci ballot question in 2002
Reduced income tax rate on "earned" income and "unearned" (savings and investment) income to 5.6% in tax year 2001, 5.3% in 2002, and 5.0% in 2003. The voters’ 59% mandate was "frozen" by the Legislature at 5.3% in 2002.

According to Romney administration analysis, the Legislature’s formula that slowly restores some of the tax cuts that were repealed or "frozen" in 2002, would finally "defrost" the "temporary" income tax rate rollback in 2014. With state spending increasing again, CLT calculates that by 2014 the Commonwealth will experience yet another cyclical fiscal crisis that will demand another tax increase instead.

We recently received a list from the House Taxation Committee that contained 62 tax cuts! Most that we missed above are business items: two brownfield credit bills, two investment tax credits bills, the exempting of snacks in vending machines from the sales tax, a subchapter S federal rules change, some housing credits, direct pay certificates, and a banking partnership bill. There is also an exemption for recovered assets of holocaust survivors and a break for surviving military spouses. But we don’t count the law that lets elderly homeowners work off part of their property tax bill, or the gas tax freeze. And the Taxation Committee counts initiative petition-generated tax cuts in its 62; we count them as ours, not the Legislature’s.

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